Saturday, March 17, 2012

BSE Sensex and NSE Nifty 50 index chart patterns – Mar 16 ‘12

Chart patterns of BSE Sensex and NSE Nifty 50 indices have reached a fork on the road. There is clear polarisation among bulls and bears. FIIs are flush with cash and have been net buyers for the past three months. DIIs are keeping them in check and preventing the indices from running away. Where does that leave small individual investors?

Not in a very happy situation. Many had expected the budget to spell out a clear direction for the economy and the stock market. The hopes were belied. There were a few direct tax sops, which were more than nullified by substantial indirect taxes. Big-ticket reforms have been sacrificed at the altar of survival of the present government.

Discussed below are technically bullish and bearish scenarios to help investors to plan their strategies and tactics for financial year 2012 – 2013.

BSE Sensex index chart

The Bullish Scenario

The blue up trend line shows that the rally that started from the intra-day low of 15136, touched on Dec 20 ‘11, is intact. The 50 day EMA is above the 200 day EMA, and the index is trading above the two EMAs. These are bullish signs, despite the short-term down trend that started from the intra-day top of 18524, touched on Feb 22 ‘12. The down trend line has to be breached pretty soon for the bull rally to sustain.

The technical indicators are giving mixed signals. The MACD is positive, but below its signal line. The ROC is above its 10 day MA, but has slipped down into negative territory. The RSI is below its 50% level. The slow stochastic is above its 50% level, but turning down. The likely outcome in the near term is some sideways consolidation till the supply-demand equation between bulls and bears gets resolved.

The global economic scenario is showing signs of improvement, but GDP growth is barely positive. India’s sliding GDP growth appears attractive in comparison. Budget provisions were hardly exciting, but there weren’t any negative surprises. The odds slightly favour a continuation of the three months long rally.

NSE Nifty 50 index chart

The Bearish Scenario

The weekly bar chart of the Nifty index closed marginally lower, but is trading above its 50 week EMA after bouncing up from the down trend line. But there are dark clouds on the horizon. The index has closed lower 4 weeks on the trot and volumes have been quite substantial. That indicates distribution.

The 20 week EMA has not been able to close above the 50 week EMA. Until that happens, the bears will remain in the game. There are multiple supports between 5080 and 5250 – from the two EMAs, the two trend lines and the 50% Fibonacci retracement level of the recent rally – which should protect the down side. But if FIIs give a thumbs down to the wishy-washy budget and start pulling out next week, the support levels may get breached in a hurry.

The technical indicators are bullish, but showing signs of weakness. The MACD is positive and above its signal line, but the histogram is falling. The ROC is positive and above its 10 week MA, but forming a bearish pattern of lower tops and lower bottoms. The RSI is above its 50% level. The slow stochastic is also above its 50% level after dropping from its overbought zone. To regain control, the bulls need to propel the index above the intermediate top of 5630.

Bottomline? Month long down trends on the chart patterns of the BSE Sensex and NSE Nifty 50 indices have raised question marks about the future of the bull rallies. If the up trend lines hold, the bulls will be at an advantage. But a runaway bull market should not be expected as long as oil price and interest rates remain high. Be very stock specific. Book partial profits to invest in tax-free bonds.